ADB to sign loan agreement with Azerbaijan on MFF project

Azerbaijan, Baku, Nov. 2 / Trend I.Khalilova

In November, the Asian Development Bank (ADB) and the Azerbaijani government are expected to sign a loan agreement approved in September by the bank's directors in the amount of $ 600 million on the project to improve water supply and sewage services in Goychay and Nakhchivan under the first tranche of multitranche financing facility (MFF), the ADB Baku Office said.

The draft loan agreement was submitted to the Azerbaijani government on Oct.12 and it is expected to be signed by late November," the same source added.

The first tranche worth $75 million under the MFF has already been approved was and these funds are designed to finance work in two regions, although previously it was expected to cover three regions. Given that these funds, including $25 million - the share of government - are sufficient for full coverage of the work in two regions, the list of regions may be expanded in the next tranches, whose sum will also be larger, the ADB Baku Office said .

The first tranche may be allocated by late 2009 - early 2010.

Under the loan agreement, the ADB's first tranche loan of $75 million is allocated for a 24-year term with a 4-year grace period and interest set according to its LIBOR-based lending facility

The first tranche would cover the additional costs in connection with the rising costs of the project to improve water supply and sewage services in Agdash, Goychay and Nakhchivan approved five years ago. The project was designed in 2004 and price for construction materials, especially on the sewage materials significantly increased during this period. The construction of modern facilities in the sewerage system of the regions covered by the project, which was proposed by Azerbaijani, also affects its value. Moreover, the ADB project provides complete restoration of water supply and sewage in selected regions.

Initial cost of the project hit $39.9 million. First, ADB allocated loan to the amount of $30 million to finance the project but $9.9 million fell on the government.

The multitranche financing facility establishes the foundation for an 8-year partnership between ADB and the government, allows for phased investments, and is backed by a clear strategy and program of reforms.

The second tranche is expected to cover expansion of coverage zone of this project for other four cities - Agdash, Agjabadi, Beylagan and Balaken.

The third trench is envisaged to allocate for creation of centralized water supply and sewerage systems around Baku.

The AICO Consulting Ltd / European Consultants Organization is the consultant of Azersu on water project.

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